Data growth a pain point for telcos like Airtel and Idea Cellular

Grabbing premium mobile broadband customers appears to have become a real challenge for market leader Bharti Airtel and No 3 carrier Idea Cellular.Grabbing premium mobile broadband customers appears to have become a real challenge for market leader Bharti Airtel and No 3 carrier Idea Cellular, as their recent results reflected slowing data business growth.

The entry of Reliance Jio Infocomm into the space may now make matters worse for them, say industry executives and analysts.

Bharti Airtel’s data earnings as a percentage of mobile service revenue in the fiscal fourth quarter have crept up sequentially to 23.3% in the January-March quarter from 23.1% while Idea's has shrunk a tad to 20.1% from 20.2%.

This suggests a worrisome trend for both listed carriers in the lead up to Jio’s likely commercial launch later this year, intensifying competition even further.

Bharti Airtel’s data realisation per megabyte of data consumed has plunged 15% on year to 22.87 paise, while Idea’s has seen a near 11% year-on-year slide to 22.9 paise in the fourth quarter. For Idea, data revenue growth has decelerated to 34.2% during January-March from 45.2% in the previous quarter. At Airtel, this has slowed to 44.5% from 50.6%.

“Low traffic growth in data is an emerging concern as both incumbents and Reliance Jio are bringing large capacities on stream,” said JM Financial. Deutsche Bank also was concerned about slowing pace of revenue increase for both from data services, a segment expected to be the mainstay for growth in the years to come.

While Idea’s strategy of cutting discounts to hike data realisations may have hurt volumes as well, Bharti didn’t tinker with pricing. Analysts feel the concerns around data growth is accentuated with the expected Reliance Jio’s entry, which would further increase competitive intensity, wherein data price realisations could fall further.

But for now, excess capacity seems to be the main concern, especially with more data spectrum coming up for auctions this July and the pace of subscriber addition not keeping pace.

Idea Managing Director Himanshu Kapania blamed the fall in data realisation to the sharp mismatch between capacity creation and demand for mobile broadband services. Though Idea added significant 3G and 4G capacity, consumption demand, he said, had remained sluggish.

The company's total data volumes have indeed grown, but the pace was much slower than the previous quarters. Gopal Vittal, Bharti Airtel’s MD & CEO (India & Sri Lanka), said the company’s data penetration had flattened materially across India, and attracting high-end data consumers could pose a challenge in coming months in a fiercely competitive market.

At an earnings call a day after it announced fourth-quarter results earlier this week, Sunil Mittal-founded Bharti Airtel said it had not been able to increase data penetration for the past three to four months.

Prashant Singhal, global telecommunications leader at consultancy firm E&Y India, however, isn’t too worried about the sluggish demand for wireless broadband services, asserting that 4G remained in its infancy in India, and it would take at least another six months to a year to fully evolve, despite technology cycles shortening and adoption trends getting faster.

“One mustn’t forget that 3G took three years to evolve. So, we mustn’t jump to conclusions about poor 4G uptake since fast mobile broadband network rollouts and expansions have started picking up only over the last six months,” Singhal said.